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Wednesday, 20 November 19
FOREIGN DIRECT INVESTMENTS IN COMMERCIAL COAL MINING IN INDIA? - DIPESH DIPU
 In August 2019, Government of India announced its approval for Foreign Direct Investment (FDI) for coal mining, processing and sale. Not that FDI in coal mining sector was new, but novelty in that was that government now permitted foreign ownership of coal mines for commercial sale of coal produced from such mines. He justifications provided by government sources included need for competition in a sector that has been traditionally dominated by government-owned companies Coal India Limited and Singareni Collieries Company Limited; need for enhanced production as here has been shortfall in meeting demand; and, need for newer technologies that may bring in sustainability to coal mining. These indeed are commendable objectives and opening up the sector for foreign participation may certainly be considered a step in the right direction. However, public policy needs to be grounded in realism, and the reality of attractiveness of commercial coal mining in India does not bode well for foreign participation.
The response of government-owned companies for coal blocks on offer for allotment for commercial coal mining was announced in early August 2019 provides the evidence. Nine coal blocks were put on offer for sale of coal in markets and the eligibility for these were restricted to government-owned companies including the state government-owned ones. There were, however, only three coal blocks[1] that received applications by NMDC Limited, Jharkhand State Mineral Development Corporation and Madhya Pradesh State Mining Corporation. This lukewarm response may indicate towards the market sentiments for commercial coal mining in India. It must also be considered here that the coal blocks for allotment for government-owned companies do not have the two-stage auction based bidding for winning the blocks and, thus, the pay-out required to win these coal blocks may be lower in comparison to coal blocks put out for auctions. So, even with lower additional pay-out to government in the form of premium the coal blocks have not found many takers. There may be several underlying economic reasons, which are amplified for foreign participants, and thus, require consideration to evaluate if this approval for FDI in commercial coal mining would have any impact and if it would meet its stated objectives.
The first and the foremost is the economic feasibility of these mines. The foreign, and indeed any private company, would have to participate in auction process for winning a coal block, and commit to a competitive premium to access the resources. This has been an impediment for private sector participation in India, given the evidence of coal blocks awarded for captive consumption in power and non-regulated sectors that include cement, steel and other approved end users. There seems to be some sanity dawning on participants on these auction with every successive rounds of auction, seen from the lower winning premiums, and hence, it may be expected that the trend may continue. Nonetheless, the premium will certainly erode the margins for commercial miners, the extent of this erosion would be a function of degree of competition for the coal blocks. The margins are also likely to be uncertain in view of the price volatility of coal, which in Indian market is pegged with CIL price and a certain premium that reflects typically the discount that IL prices tend to have over energy-equivalent international prices. This uncertainty of prices is likely to be confounded by the uncertainty in demand-supply gap that these commercial miners are required to fulfil. There has been a shortfall in supply in the recent past, evident from the rise in coal imports in the last two years even with the stated objective of the government to reduce coal imports. This may present itself as an opportunity. However, the question is whether this shortfall is likely to sustain, and thus, create a marketplace for commercial miners. With a slump in thermal power generation and nearly absent pipeline of new coal based projects, this assumption may be quite a big one to make and decide in favour of making foreign direct investment in Indian coal mining.
Other important risks pertain to project execution. There have been several impediments in coal mining project implementations, such as procurement of licenses and permits, acquisition of land and rehabilitation and resettlement of project affected people. These, apart from the procedural challenges, involve risk of reputation. Business practices on all these accounts in mining sector have often been marred with controversies and have led to perceptions of externalities in these processes having significant influence on the outcomes. Foreign participants in Indian mining have been wary of these, and hence, have had little success to show even though they have had offices and a few exploration and contract mining projects in India. Apart from reputation, the risks in procurement of licenses and land acquisition create the risks of project delays, which may then translate into cost escalations, thereby impacting project economics. Coal mining projects may have such challenges in attracting foreign direct investment.
There are challenges of talent shortage and financing as well. Innovative technologies that the foreign miners are likely to bring in India will require high quality geo-statisticians, geologists, mine planners and mining engineers. India does produce graduates in these areas of study but quantities do no necessarily reflect quality, which are further compounded by the brain drain of talent into other industries, primarily, information technology. Mining industry in general, and coal mining in particular, has not been able to retain relent in the last decade or so, with advent of opportunities for the smart geoscientists and engineers in alternate industries. Foreign mining companies may find this crippling.
There are challenges in financing too. Coal mining projects may have been good candidates for resource-based financing, but that has not happened on account of several factors, not the least of those being dominance of government-owned companies priding themselves on debt-free balance sheets, and the quality of geological information that may be inferior to global standards. The market for debt for coal mining then often reduces itself to equipment financing with the equipment being securitised to the lenders. Globally preferred model of equipment leasing is still in its relatively early stages of comprehension and acceptance in Indian mining. With limited options of raising finances, the higher degree of equity investments may also be a deterrent for foreign investors as the may have comparable projects competing for scarce capital.
Coal mining industry has been on a downward spiral globally. Foreign large miners have divested or are divesting their stakes in coal projects. Global bankers have committed themselves to not financing coal and coal based power projects. Insurance companies are shying away from coal projects too. The ecosystem for coal mining project execution is dying. Epitaphs are being written on coal and its demise is predicted by governments, investors and policy analysts wold over. But for the coal addiction of Asia, China and India in particular, the demise may have been sooner. Under such gloomy outlook for the industry, with coal mining companies filing for bankruptcies frequently, it would be tough to get these foreign companies to look at Indian destinations favourably. An industry staring at terminal decline may not witness new investors, and old ones that may have been facing severe challenges in their home countries to look out for opportunities in India.
Optimism at this point of time of foreign miners participating in Indian coal mining sector, that presents a challenging business environment, may be misplaced. Only when the government calls for applications for coal blocks for sale of coal with permitted participation for foreign direct investment that the final picture shall emerge.
By Dipesh Dipu
Energy, Natural Resources and Infrastructure Expert
This article originaly published on economictimes and Linkedin
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Saturday, 30 November 19
IMO2020 GLOBAL SULPHUR CUT: GERMAN SHIPPING TO USE NEW TYPE OF FUEL VDR SURVEY
IMO2020 Global sulphur cut: German shipping to use new type of fuel VDR survey: Technical issues and costs are the biggest challenges - VDR
&nb ...
Saturday, 30 November 19
PANAMAX: LEVELS IMPROVED IN THE PACIFIC MARKET TOO WITH $11,000 BEING CONCLUDED ON AN 81,000DWT SHIP FOR AN INDONESIA TO CHINA COAL TRIP - BALTIC BRIEFING
Capesize
The market has been well supported over the past week, led primarily by the Atlantic Basin. After bottoming last week, sentiment was s ...
Friday, 29 November 19
FITCHRATINGS MAINTAINS NEGATIVE 2020 OUTLOOK ON SHIPPING, AS TIGHTER SUPPLY HELPS, BUT SOFTER DEMAND DRAGS
Fitch’s Sector Outlook: Negative
We maintain a negative sector outlook for global shipping because of the forecast slowdown of ...
Friday, 29 November 19
INDONESIA PRODUCES 390 MLN TONNES OF COAL IN JAN-SEPT: MINISTER - REUTERS
Indonesia’s production of coal for the January-September period was 390 million tonnes, Energy and Mineral Resources Minister Arifin Tasrif s ...
Wednesday, 27 November 19
SHIPPING MARKET INSIGHT - INTERMODAL
As the end of the fourth quarter is approaching, one could say that the wet market has maintained the strong pace observed during the third qu ...
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- Ceylon Electricity Board - Sri Lanka
- Maharashtra Electricity Regulatory Commission - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Indika Energy - Indonesia
- Standard Chartered Bank - UAE
- Vizag Seaport Private Limited - India
- Mercuria Energy - Indonesia
- Australian Coal Association
- Neyveli Lignite Corporation Ltd, - India
- Larsen & Toubro Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Merrill Lynch Commodities Europe
- Wilmar Investment Holdings
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- London Commodity Brokers - England
- Kartika Selabumi Mining - Indonesia
- Bhushan Steel Limited - India
- Coal and Oil Company - UAE
- Bhatia International Limited - India
- Gujarat Electricity Regulatory Commission - India
- Globalindo Alam Lestari - Indonesia
- Edison Trading Spa - Italy
- Marubeni Corporation - India
- TeaM Sual Corporation - Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Indonesian Coal Mining Association
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Gujarat Sidhee Cement - India
- Indian Energy Exchange, India
- Pendopo Energi Batubara - Indonesia
- Miang Besar Coal Terminal - Indonesia
- White Energy Company Limited
- Madhucon Powers Ltd - India
- Intertek Mineral Services - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Malabar Cements Ltd - India
- Global Business Power Corporation, Philippines
- Riau Bara Harum - Indonesia
- Indian Oil Corporation Limited
- Cigading International Bulk Terminal - Indonesia
- GVK Power & Infra Limited - India
- Rashtriya Ispat Nigam Limited - India
- Antam Resourcindo - Indonesia
- South Luzon Thermal Energy Corporation
- Independent Power Producers Association of India
- Simpson Spence & Young - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Parry Sugars Refinery, India
- GMR Energy Limited - India
- Power Finance Corporation Ltd., India
- Electricity Generating Authority of Thailand
- Karbindo Abesyapradhi - Indoneisa
- Agrawal Coal Company - India
- Toyota Tsusho Corporation, Japan
- Straits Asia Resources Limited - Singapore
- Eastern Coal Council - USA
- Altura Mining Limited, Indonesia
- GAC Shipping (India) Pvt Ltd
- Kepco SPC Power Corporation, Philippines
- European Bulk Services B.V. - Netherlands
- AsiaOL BioFuels Corp., Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bangladesh Power Developement Board
- Directorate General of MIneral and Coal - Indonesia
- Bharathi Cement Corporation - India
- Latin American Coal - Colombia
- Sinarmas Energy and Mining - Indonesia
- San Jose City I Power Corp, Philippines
- Star Paper Mills Limited - India
- Bukit Makmur.PT - Indonesia
- India Bulls Power Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Bulk Trading Sa - Switzerland
- GN Power Mariveles Coal Plant, Philippines
- Bayan Resources Tbk. - Indonesia
- Binh Thuan Hamico - Vietnam
- Rio Tinto Coal - Australia
- Sical Logistics Limited - India
- Metalloyd Limited - United Kingdom
- Alfred C Toepfer International GmbH - Germany
- Central Electricity Authority - India
- Eastern Energy - Thailand
- Savvy Resources Ltd - HongKong
- Ministry of Mines - Canada
- Mercator Lines Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Central Java Power - Indonesia
- IEA Clean Coal Centre - UK
- Indo Tambangraya Megah - Indonesia
- LBH Netherlands Bv - Netherlands
- Coalindo Energy - Indonesia
- Maheswari Brothers Coal Limited - India
- Kaltim Prima Coal - Indonesia
- ICICI Bank Limited - India
- Jindal Steel & Power Ltd - India
- Tata Chemicals Ltd - India
- Global Coal Blending Company Limited - Australia
- Holcim Trading Pte Ltd - Singapore
- Energy Link Ltd, New Zealand
- The Treasury - Australian Government
- Siam City Cement - Thailand
- MS Steel International - UAE
- Directorate Of Revenue Intelligence - India
- Romanian Commodities Exchange
- PowerSource Philippines DevCo
- Port Waratah Coal Services - Australia
- Electricity Authority, New Zealand
- Goldman Sachs - Singapore
- Cement Manufacturers Association - India
- Orica Mining Services - Indonesia
- OPG Power Generation Pvt Ltd - India
- Borneo Indobara - Indonesia
- Singapore Mercantile Exchange
- Australian Commodity Traders Exchange
- Dalmia Cement Bharat India
- Tamil Nadu electricity Board
- SN Aboitiz Power Inc, Philippines
- New Zealand Coal & Carbon
- Parliament of New Zealand
- Oldendorff Carriers - Singapore
- Videocon Industries ltd - India
- Banpu Public Company Limited - Thailand
- McConnell Dowell - Australia
- Lanco Infratech Ltd - India
- Formosa Plastics Group - Taiwan
- The State Trading Corporation of India Ltd
- Bank of Tokyo Mitsubishi UFJ Ltd
- Medco Energi Mining Internasional
- Energy Development Corp, Philippines
- Iligan Light & Power Inc, Philippines
- Kideco Jaya Agung - Indonesia
- Meralco Power Generation, Philippines
- Petron Corporation, Philippines
- CIMB Investment Bank - Malaysia
- Deloitte Consulting - India
- Petrochimia International Co. Ltd.- Taiwan
- Ministry of Transport, Egypt
- Timah Investasi Mineral - Indoneisa
- Vedanta Resources Plc - India
- Price Waterhouse Coopers - Russia
- Interocean Group of Companies - India
- Bhoruka Overseas - Indonesia
- SMC Global Power, Philippines
- Grasim Industreis Ltd - India
- Carbofer General Trading SA - India
- Indogreen Group - Indonesia
- Essar Steel Hazira Ltd - India
- Chettinad Cement Corporation Ltd - India
- Thiess Contractors Indonesia
- Heidelberg Cement - Germany
- Meenaskhi Energy Private Limited - India
- Ind-Barath Power Infra Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Georgia Ports Authority, United States
- Minerals Council of Australia
- Posco Energy - South Korea
- Commonwealth Bank - Australia
- Kalimantan Lumbung Energi - Indonesia
- International Coal Ventures Pvt Ltd - India
- Thai Mozambique Logistica
- Chamber of Mines of South Africa
- Ministry of Finance - Indonesia
- IHS Mccloskey Coal Group - USA
- Kumho Petrochemical, South Korea
- Sindya Power Generating Company Private Ltd
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Kobexindo Tractors - Indoneisa
- Trasteel International SA, Italy
- Renaissance Capital - South Africa
- Orica Australia Pty. Ltd.
- Aboitiz Power Corporation - Philippines
- Semirara Mining and Power Corporation, Philippines
- Therma Luzon, Inc, Philippines
- Barasentosa Lestari - Indonesia
- Xindia Steels Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Anglo American - United Kingdom
- Sakthi Sugars Limited - India
- Jaiprakash Power Ventures ltd
- Semirara Mining Corp, Philippines
- Kapuas Tunggal Persada - Indonesia
- Manunggal Multi Energi - Indonesia
- Leighton Contractors Pty Ltd - Australia
- PTC India Limited - India
- ASAPP Information Group - India
- Economic Council, Georgia
- The University of Queensland
- Krishnapatnam Port Company Ltd. - India
- CNBM International Corporation - China
- Makarim & Taira - Indonesia
- Samtan Co., Ltd - South Korea
- Attock Cement Pakistan Limited
- Aditya Birla Group - India
- SMG Consultants - Indonesia
- Uttam Galva Steels Limited - India
- Wood Mackenzie - Singapore
- Salva Resources Pvt Ltd - India
- PNOC Exploration Corporation - Philippines
- Sree Jayajothi Cements Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Mjunction Services Limited - India
- Coastal Gujarat Power Limited - India
- Billiton Holdings Pty Ltd - Australia
- Bukit Baiduri Energy - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Baramulti Group, Indonesia
- Sojitz Corporation - Japan
- Karaikal Port Pvt Ltd - India
- Global Green Power PLC Corporation, Philippines
- Mintek Dendrill Indonesia
- VISA Power Limited - India
- Siam City Cement PLC, Thailand
- Africa Commodities Group - South Africa
- Sarangani Energy Corporation, Philippines
- Ambuja Cements Ltd - India
- Planning Commission, India
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